In Conversation with Dr. Michael Hopkins- Journey of an Economist to CSR Magnate

Prof. Dr. Michael Hopkins is CEO and Chairman of MHC International Ltd. (MHCi: London, Washington DC & Geneva), a research and service company on Corporate Social Responsibility and Labour Markets and CEO of the CSR and Financial Institute, a training company with the byline ‘socially responsible financially smart’ www.csrfi.com. He holds a doctorate in labour economics from the University of Geneva, is adjunct professor at George Mason University, USA since 2010 and was over 2000-2012 Professor of Corporate & Social Research at the University of Middlesex in London, UK. In the corporate world, Michael has worked and advised on strategic CSR with World Bank, UNDP, UEFA, Glaxo-Wellcome, BT, BAT, BP, Nestle, Manpower, O2, SGS, Addax Petroleum, Cargill and IBM. He has been Senior Adviser to the US Chamber of Commerce’s corporate citizenship programme, and revised the World Bank’s online CSR courses. Michael is included in the 2011 top 100 thought leaders in Europe and the Middle East see.

Prof. Dr. Michael Hopkins talks to Harsha Mukherjee, Correspondent, INDIACSR about his vision and various aspect of CSR, global economy and recession.

Below is the edited transcript of the interview.

Welcome to INDIACSR, What led to the transition from Economist to CSR Magnate?

It was 1994 and I was walking down East 42nd street in New York having just left a team meeting of the UNDP’s now-celebrated Human Development Report. The discussions were of their usual high level but I felt frustrated. After having worked for years with the UN, first with the ILO and then as an evaluator of UN programmes, it seemed to me that all that talent and experience in those organisations was really a drop in the ocean compared with the huge problems of under-development and poverty in the world we live in. I thought that the public institutions, and their closely related cousins in the third sector – the NGOs – were unable to deal with the massive problems that existed. My thoughts turned to the private sector in which I had worked as a young statistician/economist for both IBM and the now defunct ITT. I wondered as I walked, and prompted by the country rankings of the Human Development Index, whether I could do the same sort of rankings for the private sector and the Fortune 500 companies in particular.

But what did social development (now known as sustainable development and that is another story) mean for large scale corporations? I scoured the literature and found, mainly in the USA, references to socially responsible enterprises and the works of Archie Carroll, Donna Wood, Pat Werhane etc. That led to my first book on the subject, The Planetary Bargain: CSR Matters, where using the methodology of Donna Wood, I developed from her theory[1] a number of indicators. Unfortunately, data were not available to calibrate my data set and index – by the way a shortened version is on my website – see: http://mhcinternational.com/csr-services/rate-your-company where anyone can rate their company or institution. Happily, my former colleague at the University of Sussex lent me the services of his research assistant for a year and he contacted all top 100 UK companies, asking questions related to now, what we called, CSR. I ranked all companies and found that Guinness came top, today part of Diageo which is considered one of the leaders of CSR. For many Indian readers, of course, the type of product may not be to their liking which leads to another lively discussion on CSR and that is, type of product and is it socially responsible? If not should it be banned as is the case, increasingly with tobacco. Today, data are available for most large companies on their websites and the type of product question has been sub-sumed into an area known as SRI (socially responsible investment) and investors can chose which funds they wish to invest in such as those without so-called sin stocks.

Returning to the question posed above, the absence of research to support my data base led me to create the Centre for CSR in the year 2000 at the University of Middlesex that also earned me a professorship. Then an offer from the University of Genevaled me to re-locate to Switzerland and there our Centre for Teaching and CSR research is now in its sixth year (see www.corporateresponsibility.ch ). Surprising to many, my activity at University of Geneva is a PPP (public-private-partnership) with my company, MHC International Ltd (MHCi), which celebrates its 25th anniversary this year. I don’t know about magnate but for any budding entrepreneur wanting to start their own business, in the area of SMEs the main indicator of success is ‘survival’. Thus we have succeeded with that measure and as well as CSR education focus on research and advisory services right across the world. Some people say that is work. My retort, I have never worked in my life having been lucky enough to do the things I like to do! Happily, our company continues to expand and as requests have poured in from around the world to repeat MHCi’s educational activities, we launch a new subsidiary this month – CSRFI (CSR and Financial Institute) with the tag line ‘socially responsible, financially smart’ to carry out educational activities and workshops related to CSR right across the world including India.

Being an Economist, do you think CSR can be an answer to world economic turmoil.

My second book published in 2007 – CSR and International Development: Is Business the Solution? bravely tried to address at least part of the problematic posed in the question above. As readers know too well there are, unfortunately, no easy answers to the major questions of our day. However, I do believe that CSR can help to address many of the pressing global issues of today. In my book I argued that business could help development and, at the time, I was worried that I was too ambitious. But since those days I have seen a huge progression of interest by corporates in development issues.

When I worked as an economist at the ILO my main concern was employment and unemployment and, due to the recent recessions around the world my thoughts did turn to how CSR could help. My full thoughts were published elsewhere[2] where I discussed whether it was the responsibility of corporations to create employment. My short answer was that they should do something while my longer answer covered what sort of jobs are we talking about anyway? Creating jobs for their own sake simply to transfer money so that it can be spent takes us into the trap so ably summarized in the Russell quote abovein his famous essay ‘In Praise of Idleness’. There are many types of employment yet much less is currently required to supply us all with the goods we need. What we really need is a system that re-cycles wealth earned into people’s hands as fairly, and sustainably, as possible. Unfortunately, we have not found an adequate way to do that. Communism attempted this and failed as market mechanisms were not allowed to work and shortages of just about everything replaced unemployment. It also led to concentration of power in non-transparent, repressive,vicious people and non-functioning committees. The market system works well as long as it has a strong dose of democracy although it does tend to move to a cyclical inheritance of creating unemployment in recessions often caused by excess public expenditure and then on things with hardly any forward investment multiplier such as tanks, drones, aircraft carriers, nuclear weapons etc. which we hope are not to be followed by a trumped up war.

CSR for private corporations also means social benefits and living wages, both of which by the way are subject to continuing debate and not something I can either resolve nor shall discuss in this article. Suffice to say that the one area that is in immediate need of attention is the question of socially responsible restructuring. As employment reduces, firing someone immediately with little or no warning subjects the victim to many more hardships than simply losing a source of revenue. Depression, feelings of failure and hopelessness quickly ensue. We all know it is easier to get another job, assuming they exist, if you are already employed. Socially responsible restructuring and re-training would address that issue and even keep the ‘fired’ on board as re-training and access to infrastructure such as an office are provided. Both of which require little cost although complications of security in our age of essentially service sector jobs needs imaginative solutions. Not often realized is the devastating loss of human capital that can hardly be re-invigorated as jobs return and demands for lost and skills increase. An highly skilled laid-off service sector worker is hard pressed to keep up with new technology as one iphone replaces another’s blackberry. The loss to a nation is hard to calculate but may easily drop future economic growth by several percentage points.

How to avoid recession in market economies?

Elsewhere I have outlined what would have been the Keynesian response today[3]. Briefly, his story is based upon the fact that economic growth is based upon the growth of private and public consumption and investment, and the balance of trade of goods and services (the Keynesian equation). Employment cannot rise unless there is economic growth that is not merely jobless growth due to solely productivity growth. In the absence of private consumption and investment and a poor trade balance, the only source of growth will be the public sector. Now with today’s urge to reduce deficits the ONLY solution has to be the private sector. But when that is not growing, as now, and when interest rates are historically low it makes sense to borrow to invest and/or provide transfer payments to the unemployed.

But, right across the world, few countries are currently borrowing to invest. The main outcome will simply be rising unemployment and continuing recession. So, sorry, the ONLY solution is stimulus unless the private sector thinks that low consumption will suddenly reverse. But it wont without a stimulus.

So are corporations irresponsible for not investing or are governments irresponsible for not introducing more stimuli? Well something has to move somewhere or we get stagnation or, as now, a deepening recession.

Now how would CSR work in that equation? Keynes was certainly in favour of Government responsibility. Indeed, if we link CSR to his equation we can see, using today’s terminology, that economic growth needs to be ‘sustainable’ and fairly distributed, consumption needs to be conducted responsibly and energy saving, investment needs to be socially responsible and trade must not be exploitative and use harmful products. As it happens, all these ‘new’ concerns do, in fact, give rise to new forms of economic growth (of the sustainable kind) and different forms of employment.

Despite the reluctance to re-read Keynes in today’s recession even with the hindsight of 75 years since his great work, counter-cyclical stimulus is required. But we also need both Corporate and Public Responsibility to create the sorts of Sustainable development we would all like to see across the whole planet. Certainly, large deficits have complicated matters and Governments must keep a close watch on bond markets for the coming decades. Yet, the political bias both in the USA and Europe is to favor short-term stimulus by lowering taxes but not raise spending with an eye on long-term deficits through cutting public spending and raising taxes. This dual balancing act is, in fact, exactly what Keynes recommended. When times are hard increase stimulus, including public consumption and investment but quickly move to balance deficit budgets when growth returns. The danger in our economies today is that the former is happening too little while the latter, which depends on the former, simply may not occur in time leaving debt to rise to hazardous levels thereby, as Samuelson points out ‘undermining Keynesian economics as taught in standard texts’ and, more seriously, leading to perpetual unemployment and recession.

What CSR strategy would you suggest to labor intensive companies in emerging countries?

It depends on whether they are mainly for export or mainly internal. For the former group, rich countries are demanding higher and higher labor standards from emerging country suppliers for increasing consumer demands of social responsibility. On the other hand, developing countries argue that increased standards mean increased costs and lower export possibilities. I would suggest, therefore, that emerging market export-orientated companies meet the new demands half-way i.e. they start a process to improve their labour standards over a specified time such as a decade. The argument is valid that rich countries didn’t care much about labour standards when they were developing and so clearly double standards exist. Dialogue, transparency and compromise are all tools in the company armory and can be used. The World Trade Organisation is the ultimate arbiter but they, too, have somewhat avoided the issue relying on guidance from the ILO who, in turn, ask for guidance back!

For domestically producing companies they can proceed even more slowly. However, they must be careful not to be caught out by citizens in emerging markets demanding increased social responsibility.

So saying, and I follow ILO standards in this regard, the worst forms of exploitation are inexcusable such as children working in dangerous industries, forced labour, exploitation of women who cannot defend themselves, child and female trafficking for prostitution etc.

However, there is light on the horizon, India’s rich democratic heritage and relatively open press all lead to open discussion and will force abuse into smaller and smaller areas. CSR without democracy and free press is unlikely to lead to rapid change, higher incomes and an improved income distribution. We all watch China, where these latter conditions rarely exist, and we hope for democratic change there since without it, India and other progressive countries will romp home!

According to you what dimensions should be included in UNGC for CSR?

This section draws upon a longer article on the UN Global Compact[4]. There I gave rough calculations that showed that the UNGC ten principles covers only around 34% of stakeholders concerns and, thus, only partially covers CSR issues. On the one hand it is helpful that the UNGC covers at least some of the concerns of CSR, while on the other the UNGC should not be seen as an all encompassing CSR effort. To cover all the majority of CSR stakeholder concerns it is clear from even glancing at the ten principles, let alone agreeing with my figures, that the UNGC needs to add principles to cover owners, investors, board members (i.e. company governance), managers , customers, suppliers, communities etc.

Within the UN, the MDGs (Millenium Development Goals) are its flagship approach. It is of interest for companies to support development efforts. But it may well be asked whether the MDGs promote CSR? The short answer is, unfortunately, no. The MDGs have laudable objectives in their eight development goals – originally to be achieved by 2015 and woefully behind schedule -but that is another story). Of the MDGs, perhaps Goals 7 and 8 (and their targets) come nearest to direct business interest, namely:

GOAL 7: ENSURE ENVIRONMENTAL SUSTAINABILITY – Target 1: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources and

GOAL 8: DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT – Target 5: In cooperation with the private sector, make available benefits of new technologies, especially information and communications

But, to end this response on a positive note, it is encouraging that businesses are adopting a strategic CSR approach, useful that the UNGCs are there and imply support to solid principles for companies from the UN; and important to know that the development approach of the UN, the MDGs, is showing increasing interest from companies and associations of companies.

CSR is continuously redefined and we are in Type 3 – sustainability, what could be the next stop?

Like many concepts in the social sciences concepts evolve with time, are sometimes rejected and often re-shaped. The term ‘sustainable’ or ‘sustainability’ is useful given the wide use of the term in the CSR literature. Many use the adjective or the noun, as substitutes for CSR or CR. Are they right? If the word “sustainable” is seemingly everywhere, it was made possible by the World Commission on Environment and Development report Our Common Future published in April 1987 by a team led by Gro Harlem Brundtland. The report was a landmark document that brought environmental concerns and their link to social and economic development to the forefront of understanding of global problems. Our Common Future launched the notion of”sustainable development”, defining it as “development which meets the needs of the present without compromising the ability of future generations to meet their own needs “.

Indeed, corporate sustainability is increasingly being taking taken up by corporations leading one to wonder what is the relation between corporate social responsibility and corporate sustainability? As noted above, the term sustainability first came to widespread acceptance in 1987 and at that time the concept and study of sustainable development had hardly left the domain of environmentalists and ecologists. More recently, the term ‘sustainability’ has grown to encompass social and economic components as well as its historical work on the environment. Thus the sustainability school has split, rather confusingly into two. The first being the conservationist school described above (which I denote by ‘Sustainability 1′) and the second that has moved out into the social and economic field (which I denote by Sustainability 2).

The confusion with what is meant by ‘sustainability’ leads me to focus upon the term CSR with its more lofty goals since it talks not only about issues that will sustain a corporation but also those for which a corporation is responsible. Whether there are additional concerns in the CSR toolbox that will, ultimately, provide for longer-term sustainability than those in the Sustainability toolbox is a point worthy of further discussion. A useful working approach to CSR and Sustainability is to use CSR as the process’ through which sustainable development as defined by Gro Brundtland is the goal. Especially as many businesses confuse Sustainability 1 (mainly environmental concerns) with Sustainability 2 (the aim of CSR as defined here). One further comment is that companies, if they accept sustainability as a goal then they are moving toward wider society aims of sustainable development. You will find, of course, that companies use terms inter-changeably and quite like the term ‘corporate sustainability’ as interpreted by sustaining their company. One therefore has to be careful, when working on these concepts, to be careful that to adopt the full CSR stakeholder model and not assume that a profitable company is aiming at ‘sustainable development’. What is important is how profits are made in a socially responsible manner not profits at any cost.

UN mentions about lack of CSR professionals, how do you plan to fill in the gap?

Similar to the UN concerns, we have found in our CSR courses that many professionals are appointed through internal promotion without having experience in CSR. Due to the rapid rise in CSR over the past two decades – no large company can exist these days without a CSR report (or similar) such as Sustainability, Shared Value or Corporate Responsibility without the ‘S’ –and CSR specialists. Already we see that being an overall CSR specialist, although desirable, is not enough. There are, and will be CSR specialists with specific expertise on a wide variety of topics such as impact measurement, communication, change management, ethical and transparency managers, supply chain experts, NGO liaison and sustainable development of communities, report writers, innovation managers, CSR product manager etc etc. Then CSR is now taken to mean not only private corporate but also public and the NGO sector (given an impulse by the ISO26000 report). Thus both public and NGO ‘corporations’ and institutions will need CSR specialists…less on creating business value but more on creating what we can call social value for the common good.

My personal contribution to the immense effort required is to link with associations (such as business school associations) to ensure the agenda is as appropriate as possible, encourage even competitors to take our courses since, as you know, replication is the best form of flattery and to expand our own offerings – details on www.corporateresponsibility.ch – and our new offerings right across the words under www.csrfi.com to be launched later this month with courses to be certified by George Mason University of Washington DC[5]. We try and keep as up-to-date as possible and, as well as monitoring the burgeoning literature, we use the best specialists available and, every year in London, we run a CSR Update with a select group of CSR professionals whom we invite for the purpose of brainstorming on where CSR has been in the previous year and where it will be going. Our seventh such London CSR Update will take place in January 2013…a report is written and we change our courses accordingly so as to keep as fresh and relevant as possible[6].

How different are the CSR practices in 3 countries of your operations – US, London and Geneva?

Very different. Switzerland has a long social tradition, it may surprise many people to know. For instance, it has one of the highest immigrant to national population in the world, it has universal health coverage and its armed forces are purely defensive. Nevertheless, the current vogue of socially responsible investment is not understood in Swiss financial institutions controlled by faceless pension trustees. Frankly, we don’t know who decides. It is hard to generalize however, since many companies located in Switzerland have strong CSR policies – eg the pharmaceutical company Novartis which focuses on sustainability, Nestle that focuses on shared value and has just issued a 300 page report outlining its compliance with the Global Reporting Initiative etc. Then the many international NGOs (WWF, Red Cross, International Olympic Committee) and United Nations agencies (ILO, WHO, UNCTAD) with their HQs in Geneva are groping slowly toward an understanding of CSR, at a less rapid pace than the private sector it is worth adding.

Comparing the UK with USA is also not easy since there are bad and good companies in each country. The UK is, perhaps, the beating heart of CSR (or more often the term Sustainability) while USA can be characterized as seeing CSR as 1. Philanthropy, 2. Community development and 3. Public-Private-Partnerships (PPP). The UK is moving toward a legal framework for large companies to report on their triple bottom lines (social, economic and financial) while the USA views such moves as interference in private business. Yet, the USA has one of the most powerful corporate governance codes in Sarbanes-Oxley, is becoming ruthless over money laundering and tax evasion and has stellar CSR companies such as Nike, Gap and the Ford motor company. Even Wal-Mart, so long regarded as depending on emerging market low wage costs is improving its act.

Probably, and evidence to support this tends to be anecdotal, all three countries are increasing their CSR in both public and private companies. Clearly there is much evidence of two steps forward and one step back and cynics can easily have a field day with allegations of ‘green-washing’. Yet the main evidence, the number of CSR and Sustainability reports that are becoming increasingly available online and quantitative in nature (in part thanks to the Global Reporting Initiative) shows that just about all major companies in all three countries now have such reports.

Which company follows the best labor practices according to you?

Hard to say since to use a cliché ‘one swallow does not a summer make’. For instance, the oft-praised Nike has worked hard to achieve decent labor practices across its supply chain. Yet Nike does not produce anything itself, all is from sub-contracted suppliers. Thus poor labor practices can surface in remote locations that Nike didn’t even know worked for it. It has suffered on this count but has vigorously addressed labor issues right across its supply chain.

Defining what is meant by ‘best’ is also not easy, for instance it may surprise readers but there is no objective way in which to set a ‘living wage’ despite demands for many to do so. The ILO’s labor policies have recently been augmented by a pressing concern for ‘decent work’. Laudable in theory but almost impossible to define.

What development do you see in CSR in the upcoming 5 years?

With my colleague, Dr. Adrian Payne, I have just finished an article exactly on this topic but with, perhaps, an unusual title – ‘weapons of mass description’ (http://mhcinternational.com/images/stories/weapons.pdf). It does appear that there are three elephants in the CSR room – the Global Reporting Initiative (GRI), ISO 26000 CSR advisory and the International Integrated Reporting Committee (IIRC). These three bodies will influence CSR in the coming years. Yet their enormous breadth will see a move, as Adrian and I argue in our article, toward harmonization. For instance, there is no way companies and institutions, except the very largest, will be able to produce 300 pages of indicators to satisfy GRI top level (known as G4) requirements. There will be a move toward simpler forms of assessment and encouragement especially for emerging market companies and for SMEs.

For 2012, our CSR Update had five main key trends (fuller details in footnote reference[7]

Summary of prospects for CSR in 2012

1. There has been a slight decline of trust in brands, companies and sectors hence CSR will become even more important.

2. Trust in governments has declined.

3. CSR is going through another period of redefining and broadening.

4. The demand for greater transparency, disclosure and non-financial reporting continues to increase.

5. Social media has shown its ability to drive major political change but its potential as an agent of change for sustainability and in driving company change is yet to be established.

Please share your views on Indian Economy and CSR?

Since I am not so familiar with Indian company CSR practices I hesitate to jump into, what I am sure, is a healthy and passionate debate about CSR in such an important sub-continent. One item, however, has struck my attention and that was the intention of the Indian Companies Bill to request companies to spend upto 2% of their net profits on CSR. Happily this may not make CSR spend mandatory. I think viewing CSR as an additional cost for companies will simply throw the CSR baby out with the bath water. CSR is a systems approach bringing all aspects of responsibility to key stakeholders. It must be embedded in the ethos of a company and all institutions DNA.

Simply viewing CSR as an additional cost that will then drive philanthropic activities is highly mistaken. It is up to the democratic Government of India to work out what social projects to support, coupled with intense public discussion, which I know is the case in India (and probably one of despair to some). CSR is a bright new beacon that intends to embed social, economic and environmental decision making within corporate and public entities. CSR is designed to encourage business and profits through both product and social innovation. The question, of course, as we see in today’s chaotic election in the USA, is not to destroy the private sector but to judge where it is reasonable to place the marker between private and public sector activity.

[1]And also developed a definition of CSR, a bit heavy to some, and so I leave interested readers to look at my website www.mhcinternational.com where my definition is presented and discussed as well as a review of other definitions. I have also developed an introductory online course on CSR with the United Nations that interested readers can follow at a modest cost. Right now we are transferring an updated and revised version of that course to our new website www.csrfi.com. Briefly, on definition, CSR is about treating all key stakeholders responsibly. I also take corporate to mean any body thus public and NGO institutions as well.